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A day in Salem

I spent a day in Salem this week with a group of business people meeting with Democratic and Republican Representatives and Senators, including some leadership, Secretary of State Richardson and the State economist among others. We also met with a top business lobbyist. Here are my bullet points.

Everyone we met, with possibly one exception, was knowledgeable and impressive with their command of facts and policy options. Not surprising to me, but to those of you who don’t have regular contact with our elected officials and experienced professional staff rest assured people in Salem understand the issues, they simply don’t agree on solutions.

It does appear that the Democratic leadership finally understands cost containment and spending reform will be a precondition to new revenues.

However, There is a serious disconnect among some Democrats about the depth of distrust of Democrats on their willingness to follow through on cost containment promises. Particularly when it comes to PERS. No one is buying the “trust us” from Democratic leaders.

The House Republicans are showing no weakness in their resolve to oppose any gross receipts tax on business.

You hear a lot of accurate rumors when you’re in the building. We were told that the rumor of the day was the Democratic House was going to drop a new tax proposal “this week” and that the revenue report coming out was likely to trigger the personal kicker. (Not heard from the State economist BTW). The next day, the House Democrats dropped a new tax proposal, and there was a report of people in Salem concerned about the personal kicker.

Secretary Richardson appears is framing his public service as independent of any agenda except what’s good for Oregon. A good platform for a Republican running for Governor.

Everyone is holding their cards until the May revenue report. If that closes the deficit by a couple hundred million, then it makes a deal more likely. If it comes in too high however and the personal kicker is triggered, it makes the deficit even higher. Everyone’s praying for a “Goldilocks” report. Not too high, not too low.

Question to State economist: I know all taxes cause market distortion and can slow economic growth, but different taxes have different problems, and different benefits as compared to other taxes on metrics like employment, overall economic growth, inequality, household income. What are the benefits of a gross receipts tax? Answer: It’s simple.

Quick Analysis

There won’t be a long term deal this session. Governor Brown was prescient in her original budget. The shortfall will be closed three ways each making up about one third of the budget shortfall: First, Get Hospitals support for a voluntary assessment to get back the federal health care dollars so we don’t need to throw people off medicaid and hospitals don’t have to treat the uninsured. Second, Cost containment and spending reforms. And the final one third by revenue increases. What one person called “cats and dogs” revenue and fee increases. No major tax reform legislation, but some small changes to current revenues, and possible a temporary 2 year tax increase like Measures 66 and 67.

As to major corporate tax reform. It looks to me like its headed for the ballot in one of three ways. The first, and most unlikely is that House Democrats – who need one Republican vote for any new tax bill- convince a House Republican to support a proposal based on the House Democrats outline. This is unlikely because the Business lobby will refer any Democratic plan to the ballot, so there’s no benefit for any Republican to vote for a new tax. The second way to get it on the ballot would be for a House Republican to support a bill that refers the tax to the people. Maybe in a special election set for September. It would be defensible for a House Republican to support a direct Legislative referral on the theory that “while I don’t support this idea, I think the people should vote”. Lastly the public employee unions will petition their own tax proposal to the ballot.

A referral or ballot measure in 2017 would be a mistake. Voters won’t support a large tax increase until the State proves it has dealt with spending reductions and structural cost containment. We won’t know by November 2017 if the Democrats have fulfilled that promise.

There’s a good chance that public employee unions and the Democrats will again overplay their hand. The Democrats seem to be tone deaf. Now to be fair, that probably comes from winning (but against a very weak opponent) and from the amount of time they spend with each other and their main financial supporter. But I heard from more than one Democrat that the problem was that voters just don’t understand the facts and the problem or that they’ve been misled. That is denial to either the fact, reality or maybe both. But if the pro M97 campaign is any indication, Democratic tone deafness and public union hubris may get in the way of a reasonable compromise again and we may well see a new tax based on the House Democratic plan on the 2017 November ballot.

There is a huge gap between the Democratic and Republican Parties and most Oregon voters. A liberal Republican Party could take over Oregon in 2018. Not Sanders liberal. Not “moderate” Republican Party. A McCall / Hatfield Party. Smaller more efficient government that protects our air and water. Libertarian on social issues. Very invested in not only K-12 education but vocational and higher education. And finally, tough love on criminal justice and social services. Instead, Oregon Family Council and Oregon Right to Life and OFF and the NRA will demand fealty or subservient silence from GOP candidates and voters will again feel their choice is between a party that demands too much of their money or one that demands that we live by their orthodox conservative moral code. And most voters will once again chose the party that only wants too much of their money.